ZEESHAN KHAN ROLL NO 25 SECTION A Consequently, we concentrate only on the transactions and precautionary motives of the firm, with these needs being met with balances held both in cash and in marketable securities. It is necessary to obtain frequent report, generally day byr day, on cash balances in each and every company’s bank account, on cash disbursements, on average daily balances, and on the marketable securities position of the firms as well as a detailed reports on changes in this position. John Maynard Keynes suggested three reasons for the individuals to hold cash. 1. Keynes labeled these motives as follows: transactions, speculative, and precautionary. All the information is essential if the firm is to manage its cash in an efficient manner – one that provides for safe and convenient cash availabilities and for reasonable investments income on the temporary investments of cash. In addition to the cash budget, the firm needs systematic information on cash as well as some kind of control system. Precautionary motive: to maintain a safety cushion or buffer to meets the unexpected cash needs. The increase predictable the inflows and outflows of cash for a firm, the low cash that needs to be held for precautionary needs. It is important to point out that not all of the firm’s needs for cash call for holding cash equal exclusively. The second and third item in the preceding lists collectively represent collection float, the total time between the mailing ... ... middle of paper ... ...ng consideration. Outsourcing – shifting an ordinarily “in-house” operation to an outside company – is not new idea when its comes to cash management.The increase in interest rates available on marketable securities, of course the greater will be the opportunity cost to maintaining idle cash balances. The optimal level of cash would be the larger (1) the transactions balances required when cash management are efficient,or (2) the compensating balances requirements of the commercial banks with which the firm have deposit accounts. Also, the higher the interest rate, the greater will be the opportunity cost of holding cash, and the greater the corresponding desire to decrease the firm’s cash holdings, all other things are the same. They dont want to maintain excess cash balances because interest can be earned when the funds are invested in marketable securities.
This statement is used to report cash payments and cash receipts of an organization’s during a certain period. During 2015, the Group had operating free cash flow amounting to 606 million euros, versus a negative 164 million euros a year earlier (Air france-klm group, 2016). The statement displays the relationship of the net income to the changes in the cash balances. It is important to understand that cash balances can wane despite and increase in net revenue or vice versa Horngren, 2014, p. 674). The statement also aids in the evaluating management’s use of cash and management’s generation, defining a company’s capability to pay dividends and interest to pay debts when the time comes to pay them, and forecasting upcoming cash flows (Horngren, 2014, p. 674).
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
This is where the cash flow reaches its peak but also at the point of
The decision regarding the level of overall investment in working capital is a cost/benefit trade-off - liquidity versus profitability. Unprofitable companies can survive if they have liquidity. Profitable companies can fail if they run out of cash to pay their liabilities. Liquidity in the context of working capital management means having enough cash or ready access to cash to meet all payment obligations when these fall due. The main sources of liquidity are
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
· Financial flexibility or the ability to raise capital on reasonable terms under adverse conditions. Corporate treasurers know that a steady supply of capital is necessary for stable operations, which is vital for long-run success. They also know that when money is tight in the economy, or when a firm is experiencing operating difficulties, suppliers of capital prefer to provide funds to companies with strong balance sheets. Therefore, both the potential future need for funds and the consequences of a funds shortage influence the target capital struct...
Cash is needed to keep the business running on a continuous basis. So the organization should have sufficient cash to meet various requirement. The above graph is indicate that in 2011-12the cash is .039 crores but in 2012-13 it has increase to2.64 Crores & in 2012-13 it is increased to 2.39Crorse. in 2013-14, it is increased up to approx. 5.13% cash balance. So in 2010-11, the company has no problem for meeting its requirement as compare to 2011-12.
If you receive cash you are likely to save it and put it in the bank. Thus, what a business sacrifices by having to wait for the cash inflows is the interest lost on the sum that would have been saved.
Even though the bank has the customers cash (deposits) on hand it is treated as a liability as the money is owned by the customer and could be withdrawn by the customer at any time. While there are investment opportunities for banks whilst holding customers money (deposits), the bank does have limitations on its investment options and how long these investments options can be made. All of these factors make bank operations and their balance sheets different to a traditional commercial (non-financial) company’s balance
According to the common size analysis, for instance in 2015, the cash & cash equivalent is a major component of the balance sheet; since it represents 30.81% of total assets, which influence positively on the liquidity of
The choice of appropriate source of fund for capital structure is one of the major policy decisions taken by a firm.(Kumar, Anjum & Nayyar,2012) The
In our business world, ‘Capital is the lifeblood of every business venture’ (Smith, 2012). Capital can build up company, purchases non – current assets for instance machinery or plant and paid off daily expenses for examples wages, lighting, power etc. Every company needs to have someone to manage the finance by thinking different types finance which are internal short term, internal long term, external short term and external long term financial resources. These are the main four ways which can raise the capital but those sources may relate to different repayment rate and length and the amount will be received. When the owner and manager thinking to apply internal or external financial resources they need to consider Purpose, Amount, Repayment, Interest and Security which is name as PARIS. Purpose is identifying what type of finance are suitable to required, amount is how much should be borrow, repayment is how much and when should the business pay the finance back. Interest is how much is the finance cost and security is the business need put down the business assets or personal household as a deposit before receive any finance. These are the main concepts owner and manager need to remember before apply any type of finance. (Cox and Fardon, 2009) Director and manager need to think effectively for rising capital in an effective way which includes lower repayment and the control of the company. (Gillespie, 2001)
Many organizations have maximized the use of cash on hand by effective cash management techniques and the use of short-term financing. This paper will discuss various cash management techniques and short-term financing methods used by organizations.
Capital is the important element for all kinds of business transactions, which are formed by the nature and size of business firm. Capital is raised by the help of several sources of funds. If the firm maintains adequate and proper level of investment capital, this will earns high profits to the company and this can be provided more wealth to its share holders.
Cash management is seen as one of the key aspects of efficient working capital management. It involves planning and controlling cash flow of the business and cash balances held by a business (Antiwi et.al. 2015) . It deals with balancing cash inflows of the business with that of its cash outflows (Agamata 2013). Speed-up of cash collection and delaying cash payment are indicators of a good cash management. Roque (2016) said that cash management involves the maintenance of the appropriate level of cash and investment in marketable securities to meet the firm's cash requirements and to maximize income on idle funds. According to Brigham et.al. the term cash is often means as currency and demand deposit.